Public Bodies and Entrepreneurship

THE SUFFOLK SMALL BUSINESS PROJECT

Can public bodies foster entrepreneurship?

It is often held, by those who form policy towards small business, that the formation of small businesses can be encouraged by public bodies. Furthermore, it is often seen that small businesses are the key to the development of an entrepreneurial society, and that the future prosperity of an area will be enhanced by encouraging those small businesses that take on the entrepreneurial mantle. It is our objective to examine the models by which this might happen and then to compare the reality against this model.

The predominant model of economic development that prevails in policy circles within Suffolk is that of the cluster. Great importance is placed upon the development of a business cluster - particularly a Hi-Tech business cluster - in Suffolk. The theory behind clusters is quite appealing. It is held that, if companies aggregate and specialize within a narrow geographical area, then they will enjoy economies of scale in the development of local ancillary trades, a local specialised workforce will develop, and the area will attract customers as it becomes known as a source of expertise within that business operation. The theoretical base - particularly as it is expounded by Professor Michael Porter - is very influential in policy circles in the UK. At a national level, it is held that specialization is the key to competitive advantage. Local policy reflects both an adherence to that view and the application of that view as the local conduit for nationally generated funding.

The theoretical base is not without its critics. For example, a review of the subject from the Centre for Business Research at Cambridge University highlights some potential flaws in relying upon the creation of business clusters. These include the danger of localized labour cost inflation, the danger of localized premises cost inflation, a strategic vulnerability to an economic downturn in one given sector, and the possibility of a foreign take-over of locally developed businesses. In addition to this, the industrial rust-belts of the Western Economies point to the possibility of a disruptive technology significantly changing the commercial logic of a whole industry. Those areas that specialise in declining industries have experienced undue hardship as those industries have declined. The recent history of the Cambridge area shows some of the dangers of an undue specialization as the local economy overheated, causing severe labour and property shortages in that area. However, despite these caveats, the theoretical base for the effort at economic regeneration is the development of the cluster.

This theory needs to be translated into practical action. What do the public agencies do, in practice, to foster small business growth? The problem in answering this question is that there are so many public agencies attempting to do the same thing. Indeed, our survey of small business showed that 10.9% of the small business community believed that poor public sector provision was the single biggest hindrance to small business in Suffolk. A good proportion of those responses attributed this to the fractured and fragmented provision of services by the public authorities.

The public provision of services revolves around four issues - the provision of infrastructure (particularly Broadband rollout and the development of the Ipswich to Cambridge Hi Tech Corridor), property (particularly the provision of cheap managed workspace and low cost social housing), finance (mainly aimed at funding those small businesses who were ineligible for commercial funding and which need soft loan terms), and training for small businesses (particularly in the areas of running a small business and complying with public sector regulations). These are provided by agencies such as Suffolk County Council, the Rural District Councils, Ipswich Borough Council, the Suffolk Development Agency, Business Link Suffolk, the Enterprise Agencies, the Suffolk Regeneration Trust, and a host of other governmental and non-governmental not-for-profit agencies. Many small businesses find this patchwork of provision bewildering. The situation is further complicated by the revenue agencies (the Inland Revenue and Customs & Excise) attempting to reach out to the small business community, which acts to exacerbate the mistrust between the small business community and the Public Sector.

We did look at the extent to which the public sector might crowd out private sector provision, as this did crop up as an issue with some small businesses. The evidence is patchy. In some areas, there is quite clear crowding out of private sector provision, especially in the areas of advising small businesses how to adhere to governmental regulations. In other areas, there is a clear case that the public sector is providing a much needed facility that the private sector would not provide. However, this does raise the issue of whether it is wise to provide commercial facilities for which there is no clear commercial logic; but, on the other hand, the public agencies do have a social responsibility that the commercial sector does not. All in all, there is not a clear case to be made that crowding out is a major force in Suffolk.

As we can see, there is a lot of activity on the part of the public agencies to help develop the Suffolk small business community. The question then arises of how effective all of this activity is. This is difficult to measure, as we would really need to compare how the small business community would have developed without the public sector intervention with how it has developed with the public sector intervention. This form of analysis was beyond the resources available for this part of the programme. However, it is possible to compare the public initiatives against their stated aims.

At the highest level of ambition, the Ip-City initiative aims to develop:

“a community of like-minded people from business, education and supporting sectors all working towards a common vision. Spanning the technology spectrum, IP-City is home to a range of international businesses, established SMEs and ambitious local start-ups across the hi-tech sector.”

Alternatively:

“Collaborate2Innovate helps technology companies in the region increase opportunities through networking.”

The policy objective is to develop in Suffolk a Hi-Tech cluster akin to Silicon Valley. That this hasn’t happened might be due to a number of reasons. First, there is the question of scale. Silicon Valley occupies a land mass of between four to five time that of Suffolk, it has a population that is greater than London, and it has a number of world-class universities within it (Stanford and Berkeley spring to mind). Second, the population of Silicon Valley is one of the most cosmopolitan in the world. It is directly linked, as a hub destination, with all other hubs in the world. There is not even an airport in Suffolk. Third, the demographics of Silicon Valley are such that it has a large and thriving Creative Class. The demographics of Suffolk are that Country Dwellers - not a very dynamic and risk taking group - predominate. Although we cannot blame the public authorities for ambition, the views of what might be achievable for the Suffolk small business community do seem to be somewhat exaggerated. Indeed, we asked the agencies to point to some of their success stories, and there appears to be a shortage of these.

We then took the view that, if we can find little evidence of the development of a Hi-Tech cluster in Suffolk, then perhaps we could look at some of the smaller initiatives in Suffolk? There has been some progress to date. The Framlingham Technology Centre is a good case in hand. There is no doubt that, without public intervention, this centre would not have been established. However, the development of a Hi-Tech hub in Framlingham has been hindered by a lack of uptake by Hi-Tech businesses to locate in the premises. Another exciting initiative is the Micro-Lending function of the Suffolk Regeneration Trust. This has only just started operation, but we are quite hopeful that it will be a great success because it is specifically targeting a market failure as the core area of operation. Finally, the public provision of training for small business tends to vary greatly in terms of perceived quality. There are some training providers who offer an excellent range of provision. There are others who are not well regarded at all. The point is that, at the lower level of ambition, the results tend to be a bit more favourable. Possibly this is because, at this level, what is desirable is tempered by what is achievable?

By way of conclusion, we take the view that public bodies believe that they can foster entrepreneurship - particularly through the development of business clusters. There are some who question the effectiveness of this view. However, this is the view that has guided public policy towards small business. Looking at the ambitions of public policy in Suffolk, there is much to suggest that, at the higher levels of ambition, the policy has not been at all successful. However, at the lower levels of ambition, a greater number of successes can be registered. On balance, we tend towards the view expounded by a number of respondents in our survey that public policy in Suffolk hasn’t had that much of an impact on the Suffolk small business community.

Monchers™ is a Trademark of The Greenways Partnership Limited, a company incorporated in England, Reg Number 2825001. Registered office; 6 Greenways Close, Ipswich, Suffolk IP1 3RB, United Kingdom. UK Data Protection Registration Number Z7277556.